“Success is not final, failure is not fatal: it is the courage to continue that counts” – Winston Churchill
A host of reasons can cause a viable business to struggle financially, for example a change in management or tough new competition in the industry. Often it is the result of falling sales or the loss of a large contract.
It can be tempting to bury issues and deal with them later, however by then it could be too late for the business. There are several ways to ease financial pressure and turn the business around, preventing liquidation. However, it’s important to act quickly to ensure there is as little damage as possible.
Below are some options to consider:
Cutting costs
Reassessing your essential costs and introducing a weekly, and maybe even daily, cash flow model can help save you money. You’ll be able to pinpoint areas that are no longer important, giving you the opportunity to cut costs. You’ve got to be tough as cash is king here. Sell business assets, like vehicles or property, to raise extra cash.
Ensure every payment is signed off by you. This will encourage the team to find the best deals and suppliers for the business as you will be looking closely at expenses.
If you need petty cash, then make sure it’s you who collects it. You’ll have time to decide how important it is and whether or not it’s actually needed – can it be saved?
There may be some non-essential expense claims made by staff that could be changed or stopped. Explain the situation if claims are rejected.
It’s never an easy thing to do, but the point may come when redundancies need to be made. If you want to keep the business running, there will have to be certain sacrifices.
Try negotiating payment schedules with suppliers, accountants or even landlords to help turn quarterly lump sums into more affordable monthly payments to ease cash flow pressure. It’s always worth asking in case they can give you a better deal. Losing your business won’t be in their best interests.
Speak to a trusted friend or adviser about the business. They may have some ideas or see things from a different angle. It’s so easy to get caught up in the day to day running of the business that some opportunities can be missed.
Do you and your team have company cars? Save some extra money by returning them and use your own personal vehicles.
If you are behind with VAT or PAYE with HMRC, you may be able to enter a Time to Pay Arrangement which allows the business to pay back debt in instalments over a year. HMRC has its own department dedicated to this procedure called the Business Payment Support Service.
Improving cash flow
Call in any late payments and impose a stricter policy for debtor collection. Are there any changes you can make to your current system? Can you find out why payments are coming in late? Call and visit late paying customers to get to the root of the problem.
For new customers, arrange documents with clear trading terms and conditions on to be signed. This will make it easier to recover outstanding debt later if there is a dispute. It’s worthwhile taking references from new customers too, so you judge how reliable they are.
Avoid making big cuts to the marketing budget as it is the best way to advertise and sell your products or services to a wider market. Even when cash flow is suffering, keep marketing campaigns going to keep the business and brand alive. Some marketing tools, and social media, are free to use so there’s no excuse.
If you have a business website, it might need tweaking here and there to improve the layout and overall performance. Make it easy for visitors to navigate around the site so they can find the information or product they want quickly. Update the site regularly with useful and fresh content so Google can see your business is still relevant.
Keep tabs on competitors and analyse what has and hasn’t worked for their business.
Securing extra finance or working capital
As well as cutting costs, look into ways of improving working capital, whether it’s a bank loan, peer to peer finance or invoice finance. However, be careful. If the business relies on regular loans to keeping it going, there are probably deeper financial issues that might need addressing.
Restructuring options
If debt is mounting and you need protection against aggressive creditors, a company voluntary arrangement (CVA) may be the best option. This is a formal deal between the company and its creditors whereby a proportion of debt is paid back over a set period of time, usually three to five years. Some of the debt can be completely written off. Directors keep control of the company while creditors see a better return over time (compared to say liquidation).
For partnerships, a partnership voluntary arrangement (PVA) would be the equivalent procedure as would an individual voluntary arrangement (IVA) for a sole trader.
Pre-pack administration is another option for companies in financial trouble. The business is sold to a third party or new company ‘newco’ upon the appointment of administrators. Employee contracts are transferred over (saving jobs) and the business continues running under a new name.
Seek advice
What’s best for the business will depend on a number of factors including size of the business, amount of debt involved and the relationship with creditors. Speaking to an accountant, legal or turnaround professional will help you decide the most suitable option and give you advice on the next steps to take. A fresh pair of eyes may see something you’ve missed.
Images “ 3d metaphor image of financial crisis / Shutterstock.com“
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